Financial literacy

The OECD International Network on Financial Education (INFE) has developed a survey instrument
that can be used to capture the financial literacy of people from very different backgrounds in a wide range
of countries. The questionnaire is designed to be used in face-to-face or telephone interviews.
The survey comprises good practice questions drawn from existing financial literacy questionnaires.

One method of addressing personal fi nances among students of higher education is
through college- and university-based fi nancial education programs. In recent years,
there has been a growth in the number of these programs, which vary widely in their
composition. Some schools offer individual fi nancial counseling services for students,
while others provide presentations and workshops relative to personal fi nance
topics; others provide websites with links to fi nancial content.

We used descriptive statistics to examine demographic variables related to
reading as well as to compare reading outcomes for the two groups of students, those
instructed only in English and those instructed first in Spanish and then transitioned into
English reading instruction.

The questions can only provide meaningful information about the level of financial literacy of
individuals and populations if they are sufficiently varied to differentiate between high and low achievers
by combining a mixture of easy and more difficult problems. The analysis of responses to each question
shows that the spread of difficulty in the core questionnaire is appropriate; differentiating well both within
countries and across countries.

New numbers from the College Board show that federal student loan disbursements—the
total amount borrowed by students and received by schools—in the 2009–2010 academic
years grew about 14% over the previous year to $96.8 billion. At the student
level, class of 2009 college seniors carried an average of $25,000 in students loans
(College Board 2010). The amount of money students borrow has long been on the
rise. With recent economic downfalls, this is even more of a problem than in the past.

Two links must hold for conventional financial education to be effective. Education
must improve relevant knowledge and understanding (financial literacy) and better
knowledge must change behaviour. Unscrambling causality from correlation is hard.
The best empirical work finds that financial education is not likely to have major
lasting effects on knowledge and especially on behaviour. Psychology may be the
main driver of what people actually do.

Attitudes and preferences are considered to be an important element of financial literacy. If people
have a rather negative attitude towards saving for their future, for example, it is argued that they will be
less inclined to undertake such behaviour. Similarly, if they prefer to prioritise short-term wants then they
are unlikely to provide themselves with emergency savings or to make longer term financial plans.
The financial literacy survey includes three attitude statements to gauge respondents’ attitudes towards
money and planning for the future
3
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Whilst it is illustrative to focus on each component of financial literacy in turn, it is also valuable to
consider how they combine. We have done this in several ways. First, a simple table showing the
proportion of the population achieving high scores on each component illustrates important variations
(Table 4). In 8 of the countries surveyed, a larger proportion of the population achieved a high knowledge
score than a high behaviour score; indicating that levels of financial literacy in these countries are higher in
terms of knowledge than behaviour.

It is clear that levels of financial literacy vary within countries and it is therefore useful to know more
about how they vary across particular socio-economic groups.
The findings of analysis by socio-demographics show that women have much lower levels of financial
knowledge than men in almost all of the countries studied (Hungary being the exception). So for example,
whilst 67% of men in the UK gained a score of 6 or more on the knowledge measure, just 40% of women
achieved the same; in Germany the corresponding percentages are 67% and 50%.
Women are also less likely...

Financial education is the process by which individuals improve their understanding of financial
products and concepts; and through information, instruction and/or objective advice develop the skills
and confidence to become more aware of financial risks and opportunities, to make informed choices,
to know where to go for help, and to take other effective actions to improve their financial well-being
and protection (OECD 2005).

Income tax rates are at the center of many recent policy debates over taxes. Some policymakers
argue that raising tax rates, especially on higher income taxpayers, to increase tax revenues is part
of the solution for long-term debt reduction. For example, in the 112th
Congress the Senate passed
the Middle Class Tax Cut (S. 3412), which would allow the 2001 and 2003 Bush-era tax cuts to
expire for taxpayers with income over $250,000 ($200,000 for single taxpayers). Other
policymakers argue that maintaining low tax rates is necessary to foster economic growth.

Many employers have tried to educate their employees to make better decisions or
supplied tools to help them improve their choices. The empirical evidence does not
suggest that these methods are, in and of themselves, adequate solutions to the problems.
The same large employer discussed above that offered its employees the chance to switch
from a defined benefit to a defined contribution plan offered its employees a financial
education program free of charge. The employer measured the effectiveness of this
education by administering a before-and-after test of financial literacy.

The disclosure table is the heart of the prototype. It addresses two of the questions: “How do
we ensure that consumers can understand the information about financial sharing policies
and their personal information?” and “How do we ensure that consumers can compare sharing
practices across financial institutions?” At the simplest level, the disclosure table shows what
the individual financial institution is sharing, especially through the yes/no columns.

In most of the countries surveyed, women are more likely to have a positive attitude towards the long
term than their male peers. However, this is not true in Albania and Poland where men are more likely, or
in Armenia and South Africa, where there is little or no difference between the genders.
In none of the countries studied do women score more than men on the combined measure. Indeed in
Albania, Armenia, Germany, Norway, Poland, South Africa, the UK and BVI women score significantly
less.
There is a noticeable variation in financial literacy by age and income. In most...

The findings also highlight a large proportion of individuals who could benefit from initiatives
designed to change their behaviour. In almost every country surveyed, at least 3 in 10 respondents
exhibited fewer that 6 of the 9 positive behaviours discussed.
The analysis also shows how knowledge and behaviour are associated in every country – more
knowledgeable individuals are more likely to exhibit positive financial behaviour.
The data holds a great deal of potential.

National financial literacy surveys are clearly important tools, but the potential gain from a survey
undertaken across a number of countries is much greater. Such an international study provides the
opportunity to compare levels of financial literacy and progress across populations and financial markets,
and is of huge interest to policy makers and other stakeholders seeking to understand why one country
appears to be achieving more than another and which interventions are most effective.

Controversy remains about the precise connection between global imbalances and
the global financial meltdown. Some commentators argue that external imbalances had
little or nothing to do with the crisis, which instead was the result of financial regulatory
failures and policy errors, mainly on the part of the U.S. Others put forward various
mechanisms through which global imbalances are claimed to have played a prime role in
causing the financial collapse. Former U.S.

The net cost is a measure of cash flow requirements, not the
bottom-line cost of college. The net cost will correspond to the
expected family contribution (EFC) and will be similar at most
colleges. If there are significant differences in net cost, it may
be a sign of unusual circumstances that were taken into account
at one college but not the others.
Thus, families should compare college financial aid award
letters based on the out-of-pocket cost and not the net cost.

I knew I had to look for new ways to guide my children's education.
As a mother as well as an accountant, I have been concerned by the lack of financial education our
children receive in school. Many of today's youth have credit cards before they leave high school, yet
they have never had a course in money or how to invest it, let alone understand how compound
interest works on credit cards. Simply put, without financial literacy and the knowledge of how
money works, they are not prepared to face the world that awaits them, a world in which spending is
emphasized over savings....

The SEC established these requirements to protect the average investor from
some of the worst and most risky investments in the world. The problem is, these
investor requirements also shield the average investor from some of the best
investments in the world, which is one reason why rich dad’s advice to the average
investor was, “Don’t be average.”